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China tests yuan gold fix process amid pricing ambitions: sources

Wednesday, May 6, 2015 - 11:39

China conducted trial runs for the planned launch of a yuan-denominated gold fix last month, three sources familiar with the matter said, in a sign the world's second-biggest bullion consumer was moving closer to creating a benchmark price.

PHOTO: BLOOMBERG

[SINGAPORE] China conducted trial runs for the planned launch of a yuan-denominated gold fix last month, three sources familiar with the matter said, in a sign the world's second-biggest bullion consumer was moving closer to creating a benchmark price.

The state-run Shanghai Gold Exchange (SGE), on whose international platform the fix will be launched, conducted the trial with major Chinese banks and a few foreign banks, the sources said this week.

The SGE could not be immediately reached for comment.

China, also the top gold producer, feels its market weight should entitle it to be a price-setter for bullion and it is asserting itself at a time when the established benchmark, the century-old London fix, is under scrutiny because of alleged price-manipulation.

The London Bullion Market Association said last week it was considering the possibility of creating an exchange for gold trading in the city, a shift away from the over-the-counter system.

China plans to launch a yuan gold fix this year through trading of a 1 kg contract on the SGE, Reuters reported in February. "The launch of the fix is towards the end of the year ... Banks were invited in April to test the fixing process," said one of the sources directly involved in the process.

The SGE will act as the central counterparty, unlike the London fix where the bullion banks settle trades amongst themselves, the source said. "No final proposal on the fix has been given yet. This was like beta testing and there is still some room for discussion,"said a second source, a bullion trader who participated in the testing.

Participation for the fix will be open to members of SGE's international board and more trial runs are expected to be conducted later, the sources said, speaking on condition of anonymity as the plans are still in initial stages.

The SGE, which has been at the forefront of China's pricing efforts, opened an international bourse last year, allowing foreigners to trade yuan-denominated gold contracts for the first time.

Top Chinese banks including Industrial and Commercial Bank of China and Bank of Communications are members of the exchange, along with foreign banks Australia and New Zealand Banking Group, Standard Chartered and HSBC, among others.

If the Chinese fix becomes a success, it could add to the pressure on the London benchmark, which is used worldwide by producers, refiners and central banks to price holdings and contracts, although the two could exist side-by-side.